RAD Results Not Rules

RAD Results Not Rules WAHA Conference September 17, 2013 Presented by: C. Ray Baker & Associates IS RAD FOR YOU? My objective is to: Be honest with you Give you the information to decide: About RAD Which Site Give you the tools to succeed Help you avoid mistakes 2 IS RAD FOR YOU? Be honest with yourself Do your homework Consider pooled procurements and transactions Assemble the best possible team Stay involved follow the program 3 1

RAD VS. HOPE VI In nine months there are more Public Housing Authorities and Public Housing Units committed to RAD than there were in the first two years of the HOPE VI program. The RAD program has not required any additional funding from Congress. Over 20 years Congress has spent $5.6 Billion on HOPE VI. 2/2/2012 4 RAD BASICS What is RAD? HUD demonstration program that combines public housing operating and capital subsidy into payments under a Section 8 HAP contract What kinds of developments are being done with RAD? Minor rehab; major rehab; new construction; mixed income; off site replacement housing How do I determine if I have a project/portfolio that would be a good candidate for RAD conversion? Use the RAD Inventory Assessment Tool in the Resources section of www.hud.gov/rad How would RAD affect: Residents: No change; 30% of income for rent PHA Functions: Dependent on cash flow, fees, strong management; puts them on the more secure Section 8 funding platform; Gives them the affordable housing tools of other nonprofit developers Resources: www.hud.gov/rad; www.radcapitalmarketplace.com; www.radresource.net 5 RAD BASICS Contract Rents: Operating Fund (with Operating Fund Allocation Adjustment) + Capital Fund + Tenant Rents = RAD Contract Rent Can convert Public Housing to: Project Based Rental Assistance (PBRA) or Project Based Vouchers (PBV) Can only convert at current funding levels WHY IS THE SECTION 8 FUNDING MODEL MORE SECURE FOR A PHA? Tenant Protections: Tenants have the absolute right to return Choice Mobility, with limited exemptions Extensive waiver authority available to facilitate conversion 6 2

PUBLIC HOUSING CONVERSION RENT LEVELS $900 Sample Public Housing Conversion Per Unit Monthly (PUM) $800 $700 $600 $500 Operating Fund $330 Housing Assistance Payment $474 $400 $300 Capital Fund $144 $792 $200 $100 Tenant Payment $318 Tenant Payment $318 $- Pre-Conversion Post-Conversion ACC Section 8 7 WHERE S THE MONEY? The RAD options: Modest rehab with debt only Moderate rehab with debt and 4% LIHTCs Major rehab or replacement with debt and 9% LIHTCs These are funding sources that are not conveniently available to small PHAs A conversion of all LIPH units eliminates the HUD requirements for: Procurement Annual and Five- Year Plans PHAS REAC (if ) You Get to Keep the Money 8 THE RAD DETAILS Ownership Public or non-profit, except to facilitate tax credits The authority leases the land to the LIHTC Partnership A Physical Condition Assessment (PCA) must be performed on RAD sites to determine the improvements required The authority must comply with the Uniform Relocation Act An existing PILOT agreement must be renewed when ownership changes Davis-Bacon wages must be paid during rehabilitation 9 3

KEY CHANGES IN THE RAD NOTICE Mixed Finance projects Removes unit cap for Mixed Finance projects Allows financially distressed HOPE VI projects to apply Exempts awarded projects from the Public Housing Assessment System (PHAS) Extends Capital Fund obligation and expenditure deadlines Clarifies conditions for rehab assistance payments Notes: HUD will honor the FY 2012 RAD contract rents for all applications received before end of CY 2013 (applies to individual applications, portfolio awards, and multi-phase awards) PHA may adjust Contract Rents across multiple projects as long as aggregate subsidy does not exceed current funding ( rent bundling ) 10 KEY CHANGES IN THE RAD NOTICE Eliminates caps on units that can convert for: Public housing Mode Rehab Creates new awards for: Portfolio conversions PHA defines portfolio of projects, either the entire PHA inventory or some subset PHA must submit applications for at least half of the projects in portfolio HUD will reserve award for remaining units in portfolio PHA must submit application for remaining projects in portfolio within 365 days Multi phase conversion Allows PHAs to reserve conversion authority for projects with multiple development phases with applicable contract rent for all phases PHA has until July 1, 2015 to submit application for final phase PHA required to fulfill all CHAP milestones for each CHAP awarded Upon application acceptance, HUD will issue CHAP for initial phase and multi phase award letter covering all phases of project Joint RAD/CNI applicants 11 WHY RAD? What Makes RAD So Special? One simple application, not four long ones. Not competitive, just get it right. Rapid turnaround by HUD. Less procurement, fewer specialized consultants. High probability of approval. How high? RAD brings in new money. 12 4

THE RAD PROCESS What Makes RAD So Special? Board Approval Site Selection Tenant Meetings Non binding letters from lenders and LIHTC investors Submit the application Can the Authority stop the RAD process? 13 CONVERSION STEPS PUBLIC HOUSING HUD Publishes Final Notice PHAs submits Excel-based Application to HQ HQ reviews application and requests Field Office input on Eligibility HQ issues awards/commitments to Enter Housing Assistance Payments Contract (CHAPs) PHA Asset Management Subsidy Administration PBV PHAs have 6 months to submit Financing Plan to HQ for review Project converts PIH Voucher Oversight Remove from ACC Release DOT Execute HAP Execute RAD Use Agreement Close Financing HUD issues RAD Conversion Commitment Multifamily Housing Asset Management Subsidy Administration PBRA 14 THE APPLICATION Simple, start with basic pro forma www.hud.gov/rad Application Two resident meetings Board meeting and approval Financing letters Lender Investor If 9% credit, letter from HFA or self scoring Choice Mobility: Letter for PBRA; ability to administer for PBV If converting a project that is currently mixed finance, need signatures of all parties Fix Fatal Error issues CHAP Award 15 5

CLOSING PROCESS MILESTONES Post CHAP DAY 1: CHAP Issued; Transaction Manager assigned DAY 30: Information on Development Team ( One Round allowance for LIHTC; schedule subject to oversight by TM) DAY 60: Firm Financing Letters DAY 180: Submit Financing Plan DAY 360: Closing and Conversion; Section 8 begins to fund Post Conversion Temporary Relocation (if necessary) Demolition (as necessary; no Section 18 approval required) Rehabilitation or New Construction Re occupancy 16 What are your key decision points? Which sites: Least rehab Most rehab Debt Only? LIHTCs: 4% 9% PBRA or PBV? YOUR AUTHORITY 17 WHICH SITE FIRST? Do you select the site that: Needs the most work Can be converted with modest improvements Can be converted with no improvements If you do your RADomatic sites first what about PHAS Please consider a Portfolio Application Please consider Pooled Procurements Lobby WHEDA 18 6

1. Contract Rents Referred to as current funding Amounts can be found in: RAD Inventory Assessment Tool (rows 71 74 of the Inventory Overview Tab), and RAD Application (rows 5 7 of the Validation Tab) Based on 2012 funding levels: 2012 Tenant rents (from subsidy worksheet) 2012 Capital Fund Grant Award, by project 2012 Operating Subsidy Eligibility, assuming 95% proration (i.e., we restored the Operating Fund Allocation Adjustment ), excluding Asset Repositioning Fee (a special fund for demo/dispo projects) Current funding may be affected by PBV or PBRA rents caps, which are sensitive to estimated market (reasonable) rents Inventory Assessment Tool estimates market rent by using typical voucher rents (93% of FMR) RAD rents will be inflated beginning in 2014 using OCAFs (Operating Cost Adjustment Factors) OCAFs apply for both PBRA and PBV 19 1. Contract Rents (cont.) RAD contract rents reflect whatever utility arrangements are in effect at the project. Project paid utilities RAD rents equal Gross Rents Tenant paid utilities RAD rents plus utility allowance equals Gross Rents Inventory Assessment Tool uses average utility allowance (data was not available by bedroom size) RAD rents reflect any existing Energy Performance Contracts (EPCs) If project has an EPC where HUD has allowed a freezing of the project paid consumption baseline, or an energy add on, those arrangements will be carried over in RAD During the remainder of the initial calendar year of funding, the project receives only what it would have received under the public housing program (i.e., it carries forward all remaining Operating and Capital Funds for that year) If a PHA changes the bedroom distribution, the contract rents will be adjusted accordingly. Under public housing funding formulas, operating subsidies increase with each increase in average bedroom size (and decreases in each decrease in average bedroom size) For partial conversions, just enter the proposed number of units, and bedroom mix, and both the Tool and Application will show the new contract rents 20 2. PBVs vs. PBRA See accompanying chart of differences between PBV and PBRA Election depends on many factors 3. Choice Mobility Applies to all conversions unless project has received an exemption Exemption available to: (1) public housing only PHAs, and (2) PHAs that currently provide a preference in their voucher programs for homeless and vets if such preferences account for more than 33% of voucher turnover. Exemptions are granted based on first come, first served basis Requirements: PBV first available voucher after one year PBRA first available voucher after two years; however, PHA may also limit Choice Mobility to not more than 15% turnover in any year and not more than 33% of voucher turnover in any year In all cases, assistance remains with the project. The mobility voucher comes from the agency s voucher turnover 21 7

4. Right to Return and Relocation All existing residents have a right to return to the RAD project, including Transfers of Assistance. There is no RAD requirement to retain the same bedroom mix or building type; however, a PHA must still meet the right to return requirement when making changes in bedroom mixes Residents may voluntarily waive their right to return a PHA may offer, for example, a turnover voucher or a unit in public housing To assist with relocation, HUD will make Rehab Assistance Payments for units under rehab or construction, equal to current subsidies, for all units receiving subsidy at the time of conversion. As a result, HUD does not provide Tenant Protection Vouchers (TPVs) for RAD and all other relocation expenses must be addressed in the Development Budget If relocation must last for more than one year, the family is considered to be permanently relocated under the Uniform Relocation Act (AC) and the PHA must find the family comparable assisted housing, which can include public housing or vouchers. While these resources will satisfy the URA, the family must still be given the right to return to fulfill RAD requirements (if not voluntarily waived) 22 5. De Minimis Reductions and Transfers of Assistance PHA must replace 95% of all units at project converting, with exceptions for units vacant for more than two years, to facilitate social service delivery, or for reconfiguring efficiency apartments. PHA can rehab, tear down on site and build new construction on or offsite PHA can also acquire/transfer the assistance Projects meeting RAD de minimis requirements do not need to seek separate approval from the Special Applications Center (SAC) to demolish or dispose of the project (exempt from so called Section 18 ). PHA may, however, apply to the SAC for demo/dispo for a portion of the project All conversions must still meet right to return requirements 23 6. Public Housing Mixed Finance Projects (i.e., projects developed under 24 CFR part 941, subpart F) To convert to RAD, both the PHA and the mixed finance ownership entity must agree HUD will fund the project at the established RAD contract rent (or some other amount if the PHA is bundling projects); however, the PHA and ownership entity can decide how those funds are split (say, a new lease payment), provided the deal is considered feasible There is no limit to the number of mixed finance projects (other than HOPE VI projects) that can convert The PHA and the ownership entity will need to unwind the mixed finance project (1) the Declaration of Restrictive Covenants, (2) mixed finance ACC, and (3) the Regulatory and Operating (R&O) Agreement. HUD recommends that the R&O be replaced by a streamlined regulatory agreement. Projects that are currently being developed under Faircloth may not be eligible for RAD if those projects are not currently receiving assistance under public housing (however, HUD is looking at the possibility of a joint closing process down the road) 24 8

7. Program Funds and De federalization There is no restriction on use of cash flow (and no residual receipts account), mortgage proceeds, or developer fees PHAs are bound only by State and local laws, as applicable Unless the project is the remaining project to convert in a PHA s inventory, there will be a subsidy layering review where the PHA contributes Capital Funds to the Development Budget or where the PHA contributes public housing operating reserves in excess of the three year average of reserves for the project All proceeds from seller take back financing related to LIHTC transactions is also de federalized. 8. Public Housing only PHAs If convert to PBV, must find a voucher administrator willing to administer the PBV contract (that voucher agency will earn new admin fees) If convert to PBRA, will need to request Choice Mobility exemption (or otherwise find a voucher agency willing to provide Choice Mobility) 25 9. Projecting Operating Costs If estimating Operating Costs as a percentage of current Formula Expenses (say, 95%), keep in mind that Formula Expenses, as defined, within the Inventory Assessment Tool, exclude funding the PHA may receive under Stop Loss (called Transition Funding ) If estimating Operating Costs based on historical project expenses, remember that HUD s public housing financial reporting model (1) has a slightly different chart of accounts than FHA and (2) has a separate column for Operating Fund and one for Capital Fund. Generally, you will want to include only the Operating Fund column 10. Resident Participation Remember to include two meetings with residents of the project prior to submitting an application (a PHA can combine more than one project at each meeting, as long as residents are notified accordingly) Remember to have one meeting with residents after RAD award (and prior to submission of Financing Plan) The PHA will also be required to submit a Significant Amendment to its Annual Plan, which also has public notice requirements 26 11. Bonus RAD Physical Condition Assessment (RPCA) Required only after CHAP award Exclusions for: new construction, for rehab that is down to the stud, and for projects recently built (based on HUD approval) HUD shortly to form user group 12. Bonus Ownership Type Ownership can include: PHA, directly or through related non profit Any other public or non profit owner For profit owner in the case of tax credits No approval required of these alternate ownership arrangements (other than 2530/APPS process) 27 9

Various Considerations in Choosing PBRA vs. PBV Item PBRA PBV 1. Baseline Funding Levels Based on 2012 levels, with Operating Fund Same Allocation Adjustment restored 2. Initial Contract Term 20 years 15 years (up to 20 at option of voucher agency); voucher agency may also automatically extend for another 15 years 3. Contract Renewals At end of contract term, Secretary must offer, Same and PHA must, accept renewal 4. Rent Caps Current funding cannot exceed 120% of the Current funding cannot exceed the lower of (1) FMR, unless the current funding is less than reasonable rent or (2) 110% of FMR. market, in which case the current funding cannot exceed 150% of FMR. 5. Annual Inflation Adjustment Based on Operating Cost Adjustment Factor Same (OCAF), i.e., the method used to adjust rents for Multifamily projects renewed under the Multifamily Assisted Housing Reform and Affordability Act (MAHRAA). 6. Choice Mobility Resident may request next available voucher Resident may request next available voucher after after two years; however, voucher agency may one year, with no limitations. limit to not more than 15% of project in any year and not more than 33% of voucher turnover due to RAD. 7. Voucher Admin Fee N/A PHA earns Section 8 voucher admin fee for all units converted to PBV. Note: for agencies that do not administer a voucher program, and that convert to PBVs, the voucher agency will be responsible for administration of the waiting list, eligibility, reexaminations, leading to substantial deregulation for the converting agency. 28 Various Considerations in Choosing PBRA vs. PBV 8. REAC/UPCS Inspections Yes No (unless project receives FHA insurance) 9. REAC/FASS-MF Annual Financial Yes No (unless project receives FHA insurance) Statements 10. Management and Occupancy Yes No (unless project receives FHA insurance) Reviews (MORs) 11. Cash Flow Unrestricted Same 12. Appropriations Annual funding subject to appropriations; Annual funding subject to appropriations. however, the Congress has never failed to Because of the RAD Use Agreement, if renew a PBRA contract Congress provides less than full funding for the Voucher program (i.e., proration), the PHA administering the voucher program may will likely need to absorb the cuts from its non-rad voucher units. 13. Rehab Requirements There is no required level of rehab under Same RAD (or requirement to leverage debt). The PHA must simply ensure that whatever needs are identified are addressed. 14. FHEO Site/Neighborhood Standard FHEO requirements not waived Same Standards under RAD. 15. Income Mixing N/A Under normal PBV rules, not more than 25% of units in a project can be assisted, unless the units are elderly or disable, scattered site, or receiving supportive services. RAD increased the threshold to 50%, with the same exceptions. (see pages 30-41 PIH 2013-32 REV. 1) 29 PUBLIC HOUSING CONVERSIONS Resident Provisions No Re Screening of Residents at Conversion One for One Replacement Must convert all or substantially all units in covered project Family Self Sufficiency Current FSS participants continue in program Resident Participation & Funding PHA must recognize legitimate tenant organizations PHA must provide $25 per occupied unit annually for resident participation ($15 per occupied unit > legitimate tenant organization Resident Procedural Rights Consistent with Section 6 of the 1937 Housing Act Resident Relocation Consistent with Uniform Relocation Act 30 10

WISCONSIN PHAS 1 RACINE COUNTY HA 8 2 LUCK HA 16 3 EAU CLAIRE COUNTY HA 16 4 GREENWOOD HA 20 5 PULASKI CDA 20 6 Lincoln County HA 20 7 Brillion HA 24 8 WOODVILLE HA 26 9 MONDOVI HA 26 10 REEDSVILLE HA 27 11 CUMBERLAND HA 27 12 TOMAH HA 28 13 LAFAYETTE COUNTY HA 28 14 GRANTSBURG HA 29 15 Barron HA 30 16 Abbotsford HA 30 17 Chetek HA 30 18 SHELL LAKE HA 30 19 OSCEOLA HA 30 20 ALBANY HA 32 21 Burnett County HA 32 22 PARK FALLS HA 35 23 WESTBY HA 35 24 ALTOONA HA 36 25 WASHBURN HA 36 26 DEFOREST HA 36 27 ALGOMA HA 39 28 SPOONER HA 40 29 NEW RICHMOND HA 40 30 PRAIRIE DU CHIEN HA 40 31 SAUK CITY HA 40 32 LADYSMITH HA 40 33 PESHTIGO HA 40 34 SAUK COUNTY HA 40 35 ASHLAND COUNTY HA 40 36 FOND DU LAC HA 43 37 CHILTON HA 44 38 BRUCE HA 45 39 Boscobel HA 46 40 SLINGER HA 49 41 STANLEY HA 50 42 PLYMOUTH HA 50 43 MAUSTON HA 50 44 RHINELANDER HA 50 45 BARABOO CDA 50 46 AMERY HA 51 47 HUDSON HA 51 48 FREDERIC HA 53 49 HURLEY HA 54 50 SPARTA HA 58 51 SOUTH MILWAUKEE HA 60 52 RICHLAND CENTER HA 60 53 THORP HA 60 54 TREMPEALEAU HA 60 55 CLINTONVILLE HA 61 56 JEFFERSON HA 62 57 LAKE MILLS HA 63 58 NEW LONDON HA 63 59 WAUSAUKEE HA 65 60 KAUKAUNA HA 71 61 RIVER FALLS HA 71 62 WEST BEND HA 73 63 OCONTO HA 75 64 MARINETTE HA 76 65 WATERTOWN HA 80 66 ANTIGO HA 85 67 MONROE HA 86 68 Winnebago HA 86 69 DANE COUNTY HA 86 70 DEPERE HA 100 71 MERRILL HA 102 72 MANITOWOC HA 102 73 EDGERTON HA 105 74 EAU CLAIR HA 111 75 MENOMONIE HA 123 76 LACROSSE HA 128 77 RICE LAKE HA 129 78 VIROQUA HA 130 79 BELOIT HA 131 80 SHAWANO HA 146 81 ASHLAND HA 169 82 WISCONSIN RAPIDS HA 195 83 SHAWANO COUNTY HA 202 84 GREEN BAY HA 204 85 MARSHFIELD HA 209 86 Appleton HA 210 87 SHEBOYGAN HA 240 88 FOND DU LAC HA 249 89 STEVENS POINT HA 253 90 WAUKESHA HA 264 31 WISCONSIN PHAS 91 WAUSAU HA 344 92 Oshkosh HA 410 93 Superior HA 465 94 LA CROSSE HA 593 95 MADISON HA 743 96 MILWAUKEE HA 3874 32 YOUR AUTHORITY 33 11

YOUR AUTHORITY WI085000002 OPFund Antigo Housing Authority $105,681 2002 CF $106 266 2012 CF $ 74,993 Decrease $ 31,273 29.4% 34 YOUR AUTHORITY Langlade County FMR 35 IS YOUR SITE IN A QCT? http://209.48.228.153/qctmap.html 36 12

PUBLIC HOUSING RESOURCES & TOOLS Determining a PHA s RAD Rent www.hud.gov/rad Resources PHA Conversion Guide RAD Inventory Assessment Tool Fill in PHA # Populate Fill in basic financing assumptions Top rent in BOLD is RAD rent Feasibility with debt only Feasibility with 4% LIHTC & 9% LIHTC 37 THE RAD INVENTORY ASSESSMENT TOOL 38 THE RAD INVENTORY ASSESSMENT TOOL 39 13

THE RAD INVENTORY ASSESSMENT TOOL 40 FHA MULTIFAMILY MORTGAGE INSURANCE Section 223(f) Refinance or acquisition Minor/moderate repairs ($6,500/unit*high cost factor) Permanent debt with repair escrow up to 35 years Section 221(d)(4) Substantial rehab: 2 major building systems Construction/permanent debt all in one initial/final closing 40 year financing Mortgagee Letter for RAD Transactions issued 10/12 Eligibility, underwriting criteria, processing & materials 41 FHA LIHTC PILOT PROGRAM Streamlined Enhanced FHA 223(f) & LIHTCs Rehab expenditures of up to $40,000/unit Tax credit or Bond Cap allocation in hand Processed in Multifamily Hubs Using MAP lenders approved for the Pilot Goal of 3 4 month turnaround on applications 42 14

FEDERAL HOME LOAN BANK AHP Affordable Housing Program (AHP) This program is funded with 10% of the Federal Home Loan Banks' net income each year. Most effective when paired with other programs and funding sources, like Low Income Housing Tax Credits. More than 776,000 housing units have been built using AHP funds, including 475,000 units for very low income residents. $4.6 billion in total AHP dollars since 1990. That s 200 million per year. AHP loan funding often comes with an equal amount of grant funding. 43 RAD & LIHTCS RAD Sweet Spot Debt Only Abt study $24k/unit average capital need Opex at $4,500 pupy + $300 replacement reserves FHA debt at 3.45%; 1.2 DCR Feasible with RAD rents above ~$610/month 44 RAD & LIHTCS RAD Sweet Spot 4% LIHTCs Rehab needs above $24k/unit to ~$40k/unit Ease of meeting 50% test with RAD rents Available P A Volume Cap Non competitive QAPs favoring preservation, green Evolving, accessible short bond structure Historically low borrowing rates 45 15

RAD & LIHTCS RAD Sweet Spot 9% LIHTCs Targeted prospects for substantial rehab & replacement housing No Section 18 review Income mixing Split project (AMP) 9% LIHTC used to help cover relo/demo/first phase 4% LIHTC for balance of site RAD HAP contract(s) for off site replacement Acquisition/rehab New construction 46 RESULTS OF THE COMPETITIVE ROUND Initial Public Housing Awards Total applications: 113 Total awarded public housing projects: 110 Total awarded PHAs: 68 Total awarded Public Housing Units: 11,910 PHA Size* 32% Small (<250 Units in Inventory) 52% Medium (251 1,249 Units in Inventory) 16% Large (1,250+ Units in Inventory) *Based on 68 awarded PHAs 47 RAD ACROSS THE COUNTRY 1 ST COMPONENT Northeast Midwest South West Total PHAs and Mod Rehab Units Awarded 949 1,279 9,997 2,556 14,781 1,279 Units 949 Units 2,556 Units 9,997 Units 48 16

RAD AWARDS TREND CHART Aggregated Number of Unit Awards Issued 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Awards to Date Awards Expected Based on Application Trends Awards Expected Based on Current Outreach Anticipated Future Awards 0 RAD CAPITAL MARKETPLACE www.radcapitalmarketplace.com 50 RAD WEB PAGE RAD Notice, application materials, and additional resources can be found at www.hud.gov/rad Email questions to radresource.net 51 17